I’ve been asked more about gold these past few weeks than any other single investment. To call it an investment is even a stretch, but let’s not split hairs over that. Instead, I’d like to give three reasons why buying gold as an investment is not a good idea, and then juxtapose that with a golden opportunity that does exist for investors today.
First, why not gold?
~ Over the past 40 or 50 years, gold has been more volatile than stocks. The price of gold jumps around like crazy, up and down by huge percentages in short periods of time. The expected return of gold, however, is nothing compared to stocks, barely keeping up with inflation over time. So gold promises a bond-like return with stock-like volatility. Not a great combination.
~ There is no cost of capital story with gold. The reason there is no expected rate of return is because gold returns no value to the system. Gold creates no jobs, records no profits, and does not grow in size once you own it. It has no projected earnings. If you buy it, your only hope is that someone somewhere sometime will pay you more for it than you just paid. It’s kind of like investing in pet rocks. Gold is speculation.
~ If you have a diversified portfolio of equities you already own companies with business models in capital markets using gold. Companies like Freeport Momoran Copper and Gold, Inc and Newmont Mining Corp are profit-motivated companies that deal in gold and other precious metals. There is no need to double down by owning the metal as well when you can own the market premium associated with it.
Now, the golden opportunity:
Why is it that when an investment we own is cheap, we want to sell it and buy one that just went up in value? This does not make sense.
The golden opportunity to make a great return is right under your nose. My clients are able to purchase the global market place at a 25% discount right now. Make the most of this opportunity! Consider tightening your belt and investing an extra amount every month or making a year-end contribution to your investment account. The dollars you invest today will gain a better return than the dollars you’ve invested previously.
For more on why not to buy gold, check out this recent article from Dave Ramsey’s website: http://www.daveramsey.com/article/dont-buy-gold-sell-it/lifeandmoney_other